Snap Inc. (NYSE: SNAP) operates as a camera company whose primary product is Snapchat, a camera application that allows users to interact via short videos and photographs, known as Snaps. Snapchat consists of five different tabs (Camera, Communication, Snap Map, Stories and Spotlight) and additional tools that function outside of the app. As of November 23, 2021, the company's market capitalization stood at USD 79.30 billion.
- Response on Mini Tender Offer: On November 12, 2021, SNAP received an unsolicited "mini-tender" offer from TRC Capital Investment Corporation, a Houston-based, privately held investment firm, to purchase around 2.0 million shares of its Class A common stock (representing ~0.15% of the total outstanding Class A common stock) for a cash consideration of USD 50.25 per share, 4.43% lower than the closing price of USD 52.58 on October 29, 2021, the final trading day before TRC Capital began its mini-tender offer. However, SNAP holds a neutral stance on this offer and suggests that stockholders seek current market quotations for its stock.
- Collaboration with Google: On October 19, 2021, SNAP unveiled a new feature at the Pixel Fall Launch event for Google's Pixel 6 called "Quick Tap to Snap," available later this year. This collaboration with Google is the first time Snap has created a camera-mode version of Snapchat that can be accessed immediately from a phone's lock screen, making the Pixel 6 the fastest phone to make a Snap.
- Surge in Topline: The company reported YoY growth of 57.29% in revenue to USD 1.07 billion in Q3FY21 (ended September 30, 2021) compared to USD 678.67 million in Q3FY20, attributable to 22.89% growth in Daily Active Users (DAU) to 306 million in Q3FY21 from 249 million in Q3FY20.
- Reduction in Net Losses: SNAP reported a decrease in net losses to USD 71.96 million in Q3FY21 vs. USD 199.85 million in Q3FY20.
- Cash and Debt Position: As of September 30, 2021, the company had cash & cash equivalents (including short-term investments) of USD 3.48 billion and total debt of USD 2.25 billion.
- Dependence on Google Cloud and AWS: SNAP relies on cloud computing, storage, bandwidth, and other services provided by third parties such as Google Cloud Platform and Amazon Web Services (AWS). Therefore, any termination/lapse of service or damage to a facility could adversely impact its operations.
- Voting Concentration Risk: As of September 30, 2021, SNAP's cofounders Evan Spiegel and Robert Murphy owned and controlled ~99% of the voting power of its common stock, which constrains the ability of other shareholders to influence corporate decisions.
- Revenue and EBITDA Guidance: As of October 21, 2021, the company expects its Q4FY21 revenue to range between USD 1.165 – 1.205 billion, with Adjusted EBITDA ranging between USD 135 - 175 million.
Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation
(Analysis by Kalkine Group)
* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
SNAP Daily Technical Chart (Source: REFINITIV)
SNAP's share price has declined 32.11% in the past three months and is currently leaning towards the lower-band of the 52-week range of USD 43.26 to USD 83.34. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 34.60. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 60.37.
Considering the correction in the stock price in the past three months, strong top-line performance, current valuation, and associated risks, we recommend a "Buy" rating on the stock at the closing price of USD 50.67, up 2.86%, as of November 23, 2021.
* The reference data in this report has been partly sourced from REFINITIV.
* All forecasted figures and industry information have been taken from REFINITIV.
*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.